BUENOS AIRES, Argentina, Aug. 10 /PRNewswire-FirstCall/ -- Telecom
Argentina (BASE: TECO2, NYSE: TEO), one of Argentina's largest
telecommunications groups, announced today consolidated net income
of P$458 million for the six-month period ended June 30, 2005
("1H05") mainly due to positive financial results as a consequence
of currency exchange differences. Comparatively, consolidated net
loss for the six-month period ended June 30, 2004 ("1H04") was
P$230 million. Consolidated net income for the second quarter of
fiscal year 2005 ("2Q05") was P$179 million, Comparatively,
consolidated net loss for the second quarter of fiscal year 2004
("2Q04") was P$354 million. MAJOR EVENTS AND DEVELOPMENTS - During
1H05 the following results were achieved: * Net Revenues increase
by P$515 MM (+25% vs. 1H04) reaching P$2,585 MM mainly due to the
expansion of the mobile business. * Operating Profit before
depreciation and amortization slightly decreased when compare to
that of 1H04 (-P$11 MM or 1% vs. 1H04) as a consequence of cost
increases related to the expansion of the cellular business and the
pressure evidenced in the operating cost structure of the Company,
in an environment where the fixed-line regulated tariffs continue
to be frozen. * Net Income of +P$458 MM (+P$688 MM vs 1H04) was
mainly as a consequence of positive financial results due to
currency exchange differences. - Shareholders Equity as June 30,
2005 amounted to P$960 MM (+P$22 MM or +2% vs. 1H04). - Net
Financial Debt as of June 30, 2005 reached P$5,947 MM (-P$1,214 MM
or -17% vs. 1H04). * The Ratio of Net Financial Debt to Operating
Profit before Depreciation and Amortization for the last 12 months
decreased to 2.9 (from 3.5 as of June 30, 2004), mainly due to the
appreciation of the Argentine Peso against the Euro and the Dollar,
since the Company's debt is mainly denominated in these currencies,
to the effect of the debt restructuring of Telecom Personal and
Nucleo that took place during the last quarter of FY04, and to the
cash flow generation of the Group. Earnings/loss per share and ADR
for 1H05 amounted to P$0.47 and P$2.33, respectively. In
comparison, (loss) per share and ADR for 1H04 were P$(0.23) and
P$(1.17), respectively. Earnings per share and ADR for 2Q05
amounted to P$0.18 and P$0.91, respectively. In comparison, (loss)
per share and ADR for 2Q04 were P$(0.36) and P$(1.80),
respectively. Operating profit before depreciation and
amortization, operating profit/(loss) and net income/(loss) for
1H05 represented 38%, 9% and 18% of net sales, respectively;
compared with 47%, 6% and (11%), respectively, for 1H04. Operating
profit before depreciation and amortization, operating
profit/(loss) and net income/(loss) for 2Q05 represented 34%, 6%
and 13% of net sales, respectively; compared with 46%, 6% and
(34%), respectively, for 2Q04. In a context of an increase in sales
due to the strong expansion of the cellular business, the Operating
Profit before Depreciation and Amortization for 1H05 has slightly
decreased by 1%, reaching P$972 million. This decrease was a result
of higher costs in the cellular telephony business mainly generated
by greater agent commissions and subsidies in the sale of handsets.
Company Activities Evolution of Consolidated Net Revenues (1H05 vs.
1H04 comparison) Consolidated net revenues for 1H05 totaled P$2,585
million, an increase of P$515 million, or 25%, compared with
P$2,070 million for 1H04 mainly as a consequence of the increase in
revenues generated by the cellular and Internet businesses. Fixed
Telephony In fixed telephony operations, local measured service
revenues increased by P$1 million to P$247 million during 1H05.
Domestic long distance (DLD) revenues increased by P$8 million
reaching P$220 million. Revenues in both services increased as a
consequence of the higher traffic due to incremental demand and
higher number of Lines in Service. Traffic in Domestic Long
Distance service increased by 9% while local traffic increased by
1%. Monthly charges increased by P$20 million, or 6%, to P$331
million for 1H05, mainly due to the increase in customer lines.
Customer lines as of June 30, 2005 increased by 4% to approximately
3,534,000 when compared to approximately 3,409,000 as of June 30,
2004 due to the constant demand of fixed-line services.
Nevertheless, the current level of customer lines as well as the
number of lines in service is still below the level reached before
the economic crisis in December 2001. Revenues generated by
interconnection services increased by P$20 million, or 20%, to
P$118 million, mainly due to the increase in cellular traffic
transported by the fixed line network. Regarding international
telephony activities, during 1H05 revenues reached P$110 million
increasing by P$5 million or 5%, mainly due to higher incoming and
outgoing traffic levels partially offset by a decrease in rates.
Internet and Data Transmission Revenues generated by the data
transmission and Internet business totaled P$224 million,
representing an increase of P$26 million, or 13%, mainly due to the
increase in revenues generated by the Internet business as a
consequence of the increase in the number of ADSL clients. Since
4Q04, the Company is experiencing a migration process of dial-up
clients to ADSL services. This process has intensified and has
resulted in lower dial-up traffic. As of June 30, 2005 total lines
in service with ADSL connections amounted to 159,000, an increase
of 65,000, or 69%. The number of Arnet's ADSL subscribers reached
approximately 106,000, increasing by 80% while Internet dial-up
customers reached approximately 146,000, decreasing 7%. Internet
dial-up minutes represented 28% of total traffic measured in
minutes transported over the fixed-line network. Cellular Telephony
The cellular market in Argentina has grown rapidly during the last
months, with a substantial increase in the total number of
subscribers and penetration. In this environment, total cellular
subscribers of Telecom Personal in Argentina reached approximately
4,813,000 at June 30, 2005, representing an increase of
approximately 1,712,000 customers, or 55%. This increase in the
client base was fueled by an impressive growth in the number of GSM
subscribers that represent 37% of the total customer base. The
customer base as of June 30, 2005 amounted to approximately
3,324,000 prepaid subscribers, representing 69% of the total
customer base, and approximately 1,489,000 post-paid subscribers,
representing the remaining 31% (including clients of "Cuentas
Claras" a mix prepaid/postpaid product). These percentages were 79%
and 21%, respectively, as of June 30, 2004. The substantial
improvement of the composition of the customer base is a
consequence of the strategy of Telecom Personal to focus in the
acquisition of high-end clients and to increase the participation
in the postpaid services, among them the "Cuentas Claras" product,
taking into account the current demand of the cellular market.
Revenues of Telecom Personal in Argentina increased by P$420
million, or 63%, to P$1,090 million, mainly due to the higher
number of subscribers, to the increase in total traffic, to
incremental value added services and to the increase in sales of
handsets. The average monthly revenue per customer increase to P$35
or 3% when compared with 1H04 in spite of the significant increase
in the number of clients. Additionally, total cellular traffic
increased by 51% when compared with 1H04. Nucleo, Telecom
Personal's subsidiary that provides cellular services in Paraguay,
generated P$97 million in revenues during 1H05, which are
consolidated into the mobile telephony business together with the
revenues of Telecom Personal. Nucleo's 1H05 revenues represented an
increase of P$14 million, or 17%. As of June 30, 2005, Nucleo had
approximately 567,000 customers an increase of 91,000, or 19%.
Nucleo's postpaid subscribers increased by 22% reaching 107,000
clients, representing 19% of the customer base. Prepaid customers
increased by 19% reaching 460,000, equivalent to 81% of the
customer base. Directories Publicom sales increased by P$1 million
or 17% reaching P$7 million due to higher sales of advertising
space and the acquisition of new customers. It is expected that the
favorable evolution of the commercial campaigns will be reflected
in the publication of the most important directories that are
distributed during the second half of the year. Evolution of
Operating Costs The cost of services provided, administrative
expenses and selling expenses for 1H05 increased by P$424 million,
or 22%, to P$2,362 million. The evolution of costs is mainly
related to the increase in sales and competition in the mobile
telephony business in Argentina. As an example of this, subscriber
acquisition cost (including handset subsidies, agent commissions
and advertising) increased by P$138 million or 157% reaching P$226
million. Salaries and social security contributions increased by
P$43 million, or 15%, to P$329 million primarily due to the
increase in salaries granted to unionized and non-unionized
employees and to the increase in headcount in the cellular
telephony business. As of June 30, 2005, the headcount totaled
14,332, compared to 14,175 as of June 30, 2004. The increase in
headcount is also related to the expansion of the cellular
business. Taxes reached $179 million, an increase of $38 million
when compared with 1H04 due to the impact of sales tax and higher
fees paid to the regulator, the latter, in the cellular telephony
activity. The allowance for doubtful accounts increased to P$15
million, equivalent to 0.6% of revenues. The level of allowances
registered is significantly lower than the historical levels
registered by the Group. The increase of P$13 million is mainly due
to a lower level of recovery of past due receivables in the fixed
telephony business and a slight increase of uncollectables in the
cellular telephony business after the significant expansion of the
customer base. Sales commissions increased by P$66 million, or 87%,
to P$142 million for 1H05, as a consequence of the commissions paid
for new customers and higher sales of cellular prepaid cards. Costs
related to advertising increased by P$18 million or 45% to P$58
million in spite of the fact that Telecom Personal and Arnet
continued with their promotions and media advertising campaigns.
The cost of cellular handsets increased by P$159 million reaching
P$234 million mainly due to the increase in handset sales. As a
consequence of the strong competition and the growth in the
cellular business, handset subsidies have increased by P$78 million
or 325%, reaching P$102 million. TLRD (termination charges in third
parties cellular networks) and roaming cost increased by P$90
million reaching P$171 million, due to the increase in traffic
among cellular operators. Depreciation of fixed and intangible
assets decreased by P$102 million, or 12%, to P$749 million during
1H05 as a consequence of the end of the amortization period of
certain assets in the fixed telephony business. Taking into account
the speed of the technological evolution of the telecommunication
industry, Telecom Personal, with the assistance of an external
consultant, has made a review of the periods of useful lives used
for the depreciation period of fixed assets. As a consequence of
this evaluation, the useful lives of certain assets have been
changed and have been adjusted as from January 1st, 2005.
Therefore, the depreciation charge for the six-month period ended
June 30, 2005 was increased by P$15 million. Net Financial Results
The gain resulting from net financial results reached P$299 million
for 1H05 as compared to a loss of P$298 million in 1H04. The
difference can be largely attributed to the P$586 million
registered as net currency exchange differences. The higher gain
was a consequence of the effect of the appreciation of the
Argentine Peso against the Euro and the Dollar on the net financial
debt of the Company. Other Expenses Other expenses (net) decreased
by P$5 million, or 9%, to P$50 million for the 1H05 mainly as a
consequence of lower severance charges partially compensated by
higher provisions for lawsuits and other contingencies. Cash flow
and Net Financial Debt (Face Value) Net Debt (Loans minus Cash and
Banks plus Investments) decreased by P$1,214 million, or 17%, to
P$5,947 million for 1H05 compared with 1H04 (P$7,161 million),
mainly as a consequence of the effect on the financial debt of the
Company of the appreciation of the Argentine Peso against the Euro
and the Dollar, the reduction of the debt due to the successful
restructuring of Telecom Personal and Nucleo's debts and the cash
flow generation of the Company, partially offset by accrued
interests. Capital Expenditures Of the total amount of P$169
million invested in fixed assets during 1H05, P$89 million, or 53%,
corresponds to fixed-line telephony, data transmission and
Internet, and P$80 million or 47% to the cellular business.
Additionally, during 1H05 the Company has invested P$86 million in
materials (of which P$75 correspond to cellular telephony) that in
a short period will be classified as investments in fixed assets.
Other Matters Debt restructuring process of Telecom Argentina --
Homologation of the APE On May 26, 2005, the Judge overseeing our
debt restructuring process issued a resolution approving the
Acuerdo Preventivo Extrajudicial ("APE") that was subscribed by the
Company and its financial creditors. Such decision became final on
June 10, 2005. As ordered by the Argentine court, Telecom Argentina
published notices in widely circulated national and foreign
newspapers informing non-consenting creditors of the court's
decision to permit them to select among any of the options offered
by Telecom Argentina in its APE, within ten (10) court days
following the last publication of notices. The Argentine court had
provided that non-consenting creditors that do not submit an
election before the Argentine court within such timeframe would be
allocated to Option A. Moreover, Standard & Poors International
Ratings and Fitch Ratings have assigned an international rating of
B- for the notes that will be issued as consideration of the APE.
Universal Service Fund On May 4, 2005, the Secretariat of
Communication ("SC") issued a resolution clarifying that the
contribution to the Universal Service Fund is a contribution that
has to be made by the operators and should not be charge in the
invoices of the clients. Additionally, it orders to the National
Commission of Telecommunications ("CNC") to notify the companies
that they should cease with this practice and reimburse their
customers for the fees collected under such concept. On July 8,
2005, the CNC issued a resolution implementing the resolution of
the SC, instructing the companies to stop billing their customers
for Universal Service with these fees and to reimburse the fees
collected plus interest in a 90 days period. On August 9, 2005
Telecom Personal has filed an administrative recourse, and is
waiting for the resolution of this step in order to analyze further
actions in this matter. Telecom is the parent company of a leading
telecommunications group in Argentina, where it offers directly or
through its controlled subsidiaries local and long distance
fixed-line telephony, cellular, data transmission, and Internet
services, among other services. Additionally, through a controlled
subsidiary the Telecom Group offers cellular services in Paraguay.
The Company commenced operations on November 8, 1990, upon the
Argentine Government's transfer of the telecommunications system in
the northern region. Nortel Inversora S.A. ("Nortel"), which
acquired the majority of the Company from the Argentine government,
holds 54.74% of Telecom's common stock. Nortel is a holding company
where the common stock (approximately 68% of capital stock) is
owned by Sofora Telecomunicaciones S.A. Additionally, the capital
stock of Nortel is comprised of preferred shares that are held by
minority shareholders. On June 30, 2005, Telecom had 984,380,978
shares outstanding. Disclaimer This document may contain statements
that could constitute forward-looking statements, including, but
not limited to the Company's expectations for its future
performance, revenues, income, earnings per share, capital
expenditures, dividends, liquidity and capital structure; the
outcome of its debt restructuring process; the impact of emergency
laws enacted by the Argentine Government; and the impact of rate
changes and competition on the Company's future financial
performance. Forward looking statements may be identified by words
such as "believes," "expects," "anticipates," "projects,"
"intends," "should," "seeks," "estimates," "future" or other
similar expressions. Forward-looking statements involve risks and
uncertainties that could significantly affect the Company's
expected results. The risks and uncertainties include, but are not
limited to, uncertainties concerning the outcome of the court
proceedings relating to the debt restructuring, the impact of
emergency laws enacted by the Argentine Government which have
resulted in the repeal of Argentina's Convertibility law, the
devaluation of the peso, various changes in restrictions on the
ability to exchange pesos into foreign currencies, and currency
transfer policy generally, the "pesification" of tariffs charged
for public services, the elimination of indexes to adjust rates
charged for public services and the Executive branch announcement
to renegotiate the terms of the concessions granted to public
service providers, including Telecom. Due to extensive changes in
laws and economic and business conditions in Argentina, it is
difficult to predict the impact of these changes on the Company's
financial condition. Other factors may include, but are not limited
to, the evolution of the economy in Argentina, growing inflationary
pressure and evolution in consumer spending and the outcome of
certain legal proceedings. Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as the
date of this document. The Company undertakes no obligation to
release publicly the results of any revisions to forward looking
statements which may be made to reflect events and circumstances
after the date of this press release, including, without
limitation, changes in the Company's business or to reflect the
occurrence of unanticipated events. Readers are encouraged to
consult the Company's Annual Report and Form 20-F as well as
periodic filings made on Form 6-K, which are filed with or
furnished to the United States Securities and Exchange Commission
for further information concerning risks and uncertainties faced by
Telecom. For information about Telecom Group services visit:
http://www.telecom.com.ar/ http://www.telecompersonal.com.ar/
http://www.arnet.com.ar/ http://www.highway.arnet.com.ar/
http://www.paginasamarillas.com.ar/ For More Information, please
contact Financial Planning & Investor Relations Department:
Pedro Insussarry 54-11-4968-3743 Moira Colombo 54-11-4968-3628
Gaston Urbina 54-11-4968-6236 DATASOURCE: Telecom Argentina SA
CONTACT: Pedro Insussarry, +54-11-4968-3627 or Pablo Caride,
+54-11-4968-3626, both of Telecom Argentina, or Financial Planning
& Investor Relations Department: Pedro Insussarry,
+54-11-4968-3743, , or Moira Colombo, +54-11-4968-3628, , or Gaston
Urbina, +54-11-4968-6236, , or Voice Mail: +54-11-4968-3627, or
Fax: +54-11-4313-5842 Web site: http://www.telecom.com.ar/
http://www.telecompersonal.com.ar/ http://www.arnet.com.ar/
http://www.highway.arnet.com.ar/
http://www.paginasamarillas.com.ar/
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